Last month in a large conference room across the hall from U.S. Rep. Bradley Byrne’s office in the Rayburn House Office Building in Washington D.C., a relatively small contingent representing the Coastal Alabama Partnership gathered for a quick debriefing.
The group, including about 16 Mobile and Baldwin County elected officials and business representatives, had spent the previous day and a half in a whirlwind of meetings in the offices of the U.S. Department of Transportation and the Federal Highway Administration.
Earlier in the summer, the DOT released a long-awaited Draft Environmental Impact Statement (DEIS) for the proposed $1 billion “Interstate 10 Mobile River bridge and Bayway widening project,” which calls for a new six-lane bridge to alleviate congestion at the Wallace Tunnel and seeks to widen the adjoining Bayway’s four lanes to eight.
The release of the draft environmental statement was considered a milestone, as the federal government’s original Notice of Intent for the project had been registered more than 10 years earlier, in October 2003. The statement’s release obligated the Alabama Department of Transportation to manage an ongoing, mandatory public comment period locally, but it also opened the door for the state to explore financing options. Aside from those two hurdles, ALDOT will also have to settle on a route and design before acquiring a final environmental assessment, then purchase necessary rights of way before beginning construction.
Alabama is not alone in its efforts to complete what is categorized as a “major project” by FHA standards. But the congressional abolishment of earmarks in 2011 and evaporating gas tax revenues from more fuel efficient vehicles requires that mixing a strong cocktail for major project funding take a more creative approach.
Along with bonds, loans and both federal aid and state road funding, officials may also seek private partnerships for the proposal to be feasible. And after initially being wary of the idea, the Coastal Alabama Partnership’s trip to D.C. appears to have warmed the local delegation to the idea of imposing tolls to partially pay for the project.
Returning from the trip, Mayor Sandy Stimpson referred to tolls as a “viable option,” although one that would ultimately rest upon traffic and revenue projections.
In the Port of Miami this August, Florida transportation officials cut the ribbon on a $1.1 billion tunnel project that imposed no tolls, but represents one of the first public-private partnership (P3) transportation projects in the country.
Nearly a third of the Miami tunnel was paid for with state funds, but another third was borrowed from a consortium of banks and the remainder was financed by the project’s developer, Miami Access Tunnel LLC, which secured a $341 million low-interest loan from the federal government and more than $80 million in equity contributions from international investors.
Officials in Indiana and Kentucky jointly compiled different packages for a $2.5 billion, two-bridge proposal in Louisville in what is generally referred to as the Ohio River Bridge Project. There, a felxible electronic toll option has been approved, but not finalized.
In the Ohio River project, the bridge on Interstate 65 in downtown Louisville is being replaced with $648 million in bonds or bond anticipation notes, $452 million in federal loans, and $352 million in state and federal aid.
Alternately the second bridge, a new span linking Interstates 265 and 71 east of downtown Louisville, will be financed with $676 million in private activity bonds, $392 million in “milestone payments” from the Indiana Finance Authority, $78 million in private equity contributions and $2.7 million in interest income.
The Federal Highway Administration’s Office of Innovative Program Delivery, which hosted a meeting with the Coastal Alabama Partnership last month, noted the state of Indiana opted to finance the east crossing of the Ohio River Bridge Project through an “availability-pay P3,” while Kentucky is delivering the downtown crossing through a “more traditional design-build contract.”
Meanwhile, New York lawmakers and transportation officials are largely banking on toll revenue bonds and notes to pay for the enormous $5 billion Tappan Zee Bridge replacement 25 miles north of midtown Manhattan, which has secured less than half of its estimated cost through federal loans and state programs and attracted little interest from private investors.
When it is projected to open to traffic in 2017, travelers may pay as much as $15 for a single round trip ride across the bridge, which would saddle the average New York City daily automotive commuter with about $300 in transportation costs each month.
Back in Alabama, officials have suggested that if the new bridge includes a toll, the existing tunnels and Cochrane-Africatown Bridge will remain toll-free, providing an unimposing option for local commuters. But due to the availability of funding elsewhere and the comparatively low cost of the project, proposed tolls on a bridge over the Mobile River would likely never reach the heights of those over the Hudson.
In order to disseminate what the Coastal Alabama Partnership took away from its “D.C. fly-in” last month, President and CEO Wiley Blankenship said the group was planning to host a breakfast meeting Oct. 22 to recap.
But offering a preview, “there were a couple of things we learned,” he said. “First, a term you’re going to hear a lot of going forward is ‘projects of national and regional significance.’”
Blankenship said the DOT requested ALDOT fill out a survey for an unfunded program that nevertheless aims to see where the project falls in line with the significance of those in other states. He pointed out that part of trip was devoted to meetings with lawmakers in neighboring states with the goal of making a more regional argument for the bridge.
Indeed, late in the debriefing at the Rayburn Building, Florida Congressman Steve Southerland entered with staff members to indicate his interest in and possible support of the project. Rep. Byrne said he has had similar conversations with Florida Congressman Jeff Miller and Louisiana Congressman Steve Scalise.
Mike Lee, the president of Page & Jones and a member of the partnership, commented that, “the only way to promote the bridge now is not just as a local, feel-good project, but one of regional and national significance for economic development, quality of life and emergency preparedness.”
Rep. Southerland suggested the Northwest Florida Beaches International Airport, which was completed in 2010 at a cost of $318 million, was promoted using similar talking points.
“The other thing we discussed is creative ways of funding,” Blankenship continued. “If the state only gets certain amount from fuel tax – my understanding is tax is going down because cars are more efficient and people are driving less – there are a couple of things we can do. 1992 was the last time the federal government raised the fuel tax and the states mostly followed. I don’t know what the future holds … but I don’t see that happening. We’re going to have to figure out [if some taxpayer] money should be committed, but while we were discussing that with the feds, the discussion of tolls evolved. Would it help? We need to have it on the table.”
Jim Tymon is the director of management and program finance of the American Association of State Highway and Transportation Officials (AASHTO), a national organization that works with state departments of transportation to develop and evaluate transportation finance and program funding proposals for projects like the Mobile River bridge. Although he declined to talk about Alabama’s proposal specifically, Tymon said there are “many ways” to leverage financing without tolling.
“I think what [we] are seeing with a lot of these sized bridge projects is either entering into some kind of public-private partnership or securing some type of credit instrument to help finance it,” he said. “So either through loans or through bonding.”
Tymon mentioned the DOT’s Transportation Infrastructure Finance and Innovation Act (TIFIA), which “established a federal credit program for eligible transportation projects of national or regional significance” and allows the DOT to provide three forms of credit assistance – secured (direct) loans, loan guarantees, and standby lines of credit.
Tymon said successful TIFIA applicants may obtain as much as a third of a project’s funding through the program, where the goal is to “leverage the loan to attract private and other co-investment to make critical improvements to the country’s surface transportation system.”
The DOT also encourages applicants to consider Grant Anticipation Revenue Vehicles (GARVEE) bonds, which essentially allow state DOTs to issue bonds and pledge future federal money as repayment.
A Capitol Hill staffer with appointments on transportation committees prior to joining AASHTO, Tymon said he is seeing more and more private investment in large-scale transportation projects in the U.S., whereas the practice has long been commonplace in foreign nations.
“It’s a maturing market as it relates to private investment, but I would say we’re probably 20 to 30 years behind other parts of the world that have been doing this a lot longer than we have,” he said, pointing to Spain and Australia as two examples of countries with heavy private investment in transportation infrastructure.
Generally, Tymon said, a group of investors will front a portion of the project’s construction budget then recoup the investment from “availability payments,” which he compared to a mortgage.
“Rather than say, ‘I’m going to pay you back with toll revenue,’ I’m going to pay you a certain amount every year or every month for next 30 or 50 years, then it’s up to the project sponsor to figure out whether they want to charge tolls or whether or not they want to take that amount from their budget over the next 30 to 50 years and pay this private company,” he said. “In that case, the project sponsor gets to spread out the cost, but like a mortgage, you’re paying a premium and the private sector is getting a rate of return. They may not see a 10 percent annual return, but if they can get a single-digit return on their investment every year over several decades, they view that as an attractive investment.”
But at the same time a toll, Tymon said, may provide a much more attractive security for private investors than state funding.
Blankenship seemed to agree. Although lacking a revenue study, he explained “it doesn’t take a lot of days, if you have the traffic, to have a billion dollar bridge paid for.”
ALDOT’s preliminary cost estimate of $850 million on the low end to $1.2 billion on the high end was based upon “information received from similar bid projects in Alabama and other states with preliminary estimating charts based on project scope,” according to a spokesperson. “The economy (cost and availability of material, contractor interest, labor wages, etc.) will affect the estimated cost over time. Any design changes (i.e. length, features, height) have the potential to affect the estimate positively or negatively.”
Costs for the Port of Miami tunnel project ballooned as it stalled during the economic recession and today, many Floridians continue to question its benefit. Similarly, New York Gov. Andrew Cuomo has received backlash for ongoing finance proposals for the Tappan Zee Bridge.
On the other hand, the Ohio River Bridge Project is considered cost effective and has faced little opposition from lawmakers or the public. But Tymon warned that time can affect the perceptions of a project, or of proponents’ competency to properly manage it.
“One of things that will almost increase cost is how long elapses between the estimate and putting a shovel in ground,” he said. “So I would say that is the most sure fire way, if it doesn’t get moving for another 10 years or so, there will be a natural cost of inflation.”
CORRECTION: The print version of this article reported the $2.5 billion Ohio River Bridges Project in Kentucky and Indiana will be toll-free. In fact, a flexible, electronic tolling option has been proposed by the project’s manager, but it has not been approved by officials in either state. For more information visit www.kyinbridges.com.